Happy 100th Birthday, Personal Income Tax! Two Reasons to Celebrate (and One Suggestion to Grow On)

Last week, my daughter celebrated her first birthday. Marking that important milestone for my family allowed me to reflect on the difference that just a year can make. Today I’m celebrating another important milestone for my family and for yours—the one hundredth birthday of our federal personal income tax—and reflecting on its benefits for all of us.

One hundred years ago today, President Wilson signed the Revenue Act of 1913 into law, giving birth to the personal income tax. Although that first personal income tax looked a lot different than it does today, its adoption signified an important shift in our country’s approach to raising revenue. In honor of this important birthday, here are two things to celebrate about the federal personal income tax—and one suggestion to make the next hundred years even better.

Let’s Celebrate!

1. It’s progressive
   

   With the exception of the Civil War era, until 1913 we relied largely on tariffs and consumption taxes on things like alcohol to fund our government. The federal personal income tax introduced a progressive method of taxation—households with higher incomes pay a larger share of their income in tax. This is especially important because the vast majority of other taxes, like sales and payroll taxes, hit lower-income families the hardest, creating an overall tax system that is barely progressive.

2. It supports critical services and investments
   

   Today, the personal income tax accounts for over forty percent of total tax revenue collected by the federal government. It helps our nation meet the challenges of the 21st century, just as it did in the last century. It funds services that are critically important to low-income women and their families—including health care through Medicaid and the Children’s Health Insurance Program, nutrition and housing assistance, family tax credits, job training and tuition assistance. It also supports investments in education, basic research, food safety, and environmental protection that are vital to the well-being of our communities today—and for our nation’s future. These programs—and the difference they make for families every single day—is certainly something to celebrate.

And One (Suggestion) to Grow On

Over time, the power of the personal income tax to provide sufficient revenue has been chipped away by loopholes and unnecessary deductions for the highest-income taxpayers. Even in the income tax’s infancy, powerful interests and the super-rich were trying to find a way around paying their fair share. As one Congressman lamented in 1915: "I write a law. You drill a hole in it. I plug the hole. You drill a hole in my plug."

Earlier this year, President Obama proposed a specific plug that would limit extra tax deductions and certain exclusions for the richest American households to 28 percent – meaning that very wealthy taxpayers in the highest tax brackets would get the same tax benefit from deductions and exclusions as a household in the 28 percent tax bracket. This policy would make the tax code fairer and raise needed revenue—about $52.9 Billion a year, to be exact. That’s more than the federal government currently spends on the Low-Income Home Energy Assistance Program, the Supplemental Nutrition Assistance Program for Women, Infants and Children (WIC), Temporary Assistance for Needy Families (TANF), and the Housing Choice Voucher Program (Section 8 Tenant-Based Rental Assistance) combined. This change would allow the personal income tax to thrive in its next hundred years, and continue to do its important work.

So Happy Birthday Personal Income Tax—our best wishes for a long and healthy life ahead!